It is increasingly common for property to be held in SPVs (Special Purpose Vehicles) – meaning that the property is the only asset of the company and the company is not trading in any other respects, other than to operate and manage the property.
This means that when it comes to purchasing the property there is another option available to a potential purchaser – buying the company! There are benefits and drawbacks to each option which should be considered on a case by case basis.
Buying the just the property is generally simpler and “cleaner”. There will be less paperwork and filing obligations with the relevant bodies and the purchaser does not inherit the past liabilities of the company. A benefit for the seller is that they get a clean break, as with a company sale there will be ongoing warranties which they could be liable for for a number of years. It also means that due diligence will not need to be done on the company and both parties legal costs will likely be lower.
Buying the company, however, will likely result in less tax for the buyer. Stamp duty on company shares is currently charged at a rate of 0.5%. In contrast, stamp duty land tax (SDLT) on commercial property can be up to 5%.
This would mean that on a property purchase of £500,000, the SDLT would be £14,500.00 whereas to purchase a company at the same value, the stamp duty would be calculated as £2,500.00.
There is also the issue of VAT. If a property has been VAT elected, this means that VAT would have to be paid on the purchase price at the standard rate of 20%. This is in contrast with carrying out a company share purchase where no VAT would be applied.
Finally, there is also the consideration of Capital Gains Tax and Corporation Tax. When buying a company, the buyer would assume the capital gains tax charge for any increase in value that the property has enjoyed whilst it has been in the company’s ownership.
For further advice on the sale or purchase of a property from a company, our commercial property team is here to help. Call us today on 0845 287 0939 or send your enquiry by email and a member of the team will get in touch with you.